Invalid protest

Posted on March 29, 2011 | View 344

The garment industry stands only to gain from the proposed excise duty regime.

The reported move of garment manufacturers to protest against the levy of 10% excise duty on branded apparel is wholly unwarranted. The price on which the excise duty would be levied is 45% of the retail price, now that the abatement rate has been enhanced to 55%. Readymade garments and made-ups have already been under an optional excise duty regime. Manufacturers are required to pay excise if they wish to avail of Cenvat credit on inputs in production.

And now that the Centre plans to bring in an integrated, pan-India goods and services tax regime soon, continuing with an optional levy really makes no sense. A system of regular duty in the apparel sector would provide seamless tax setoffs for levies already paid in the production process. Besides, the apparel industry can expect sustained domestic demand growth, in the medium term and beyond.

As for demand abroad, a CII-McKinsey study projects a seven-fold increase in apparel exports over the decade. So, the suggestion that the 10% duty on branded apparel would unduly affect demand appears to be without basis. The higher abatement included in the Finance Act seems arbitrary, but it is valid to exclude distribution-related expenses. The figures show that overall demand for apparel remains strong, with the trend growth rate in the heady double-digits. With a large cotton and synthetics output base, the garment industry in India can source its requirements locally.

The way ahead is to maintain and indeed rev up quality offerings of apparel and made-ups, and step up style and design innovation so as to attract the attention of finicky, demanding buyers. Today, about 45% of our total textile exports involve readymade garments. But there’s also the need to go upmarket with renewed focus on design skills, dedicated textile parks to remove bottlenecks and raise value addition levels.

With the Indian garments market pegged at . 90,000 crore, and branded apparel making up about . 20,000 crore of the total, the upside is huge. For apparel manufacturers here, building and sustaining international brands of garments is an idea whose time has come.